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Citigroup's Top Nordic Corporate Banker Says QE Showdown Is Nigh

(Bloomberg) -- As Citigroup Inc. makes some adjustments to its Nordic corporate banking business, the man now running the unit says bond issuance may well be intense in the coming months as firms try to sort out their funding needs before central banks take away the punch bowl.

“What everyone is keeping an eye on is whether the expected corporate earnings growth -- which you’d normally expect to be a good tailwind towards equities -– will be offset by pressure on credit spreads driven by higher rates and QE withdrawn,” Alexander Stiris, who started in Stockholm this month after working at Citigroup in London, said in an interview.

Sweden Corporate Bond Volumes Seen Staying High After Record ’17

Aside from bringing Stiris over from London, Citigroup has also made some adjustments to its investment banking arm in the Nordic region. Earlier this month, it named Lars Ingemarsson and Ari Makela co-heads of investment banking in the region.

Stiris said Citigroup is devoting a lot of time to finding ways to help clients cut costs by relying more on technology.

“It’s all about getting a lot of these cash management, trade and risk management solutions to be as simple as possible, to be as efficient as possible,” he said.

Record Issuance

Bond issuance globally set a record last year, as corporate treasuries took advantage of low interest rates and growing investor confidence. Now, with the world’s major central banks winding back quantitative easing programs, issuers are wondering whether they risk missing an historic opportunity if they don’t tap investors again before markets turn.

“Last year, you could see that concern in the depth of debt capital markets and the amount of issuance that was done,” Stiris said. He says many treasurers are taking another look at their capital structures, with those who haven’t yet switched to longer maturities likely to do so this year.

“A lot of corporates were focusing on terming out a lot of the debt. This year started pretty strong as well,” Stiris said. “That could well be a sign of treasurer’s wanting to tap the market as soon as possible before these changes happen.”

Watching the ECB

Analysts have brought forward their estimates for when the European Central Bank will set an end-date for its bond-buying program amid expectations that the strongest economic expansion in a decade will soon reignite inflation. In the U.S., the Federal Reserve has already started raising rates.

With interest rates in Sweden and Denmark well below zero, Stiris says treasury departments are trying to make sure they’re not wrong-footed by shifts in policy after years of extreme monetary stimulus across the region. For the most part, that’s resulted in more bond issuance than usual. The volume of securities listed on Nasdaq’s Nordic bond platform climbed 10 percent to hit a record 74 billion euros ($91 billion) last year. Bond managers say this year may well be better, supported by a shift away from bank lending.

“Some corporations already have long-term debt which they did last year and they don’t need to do very much this year,” Stiris said. “Other corporates may need to focus on it because they didn’t do as much last year as they wanted to.”